Correlation Between IPC MEXICO and Colgate Palmolive

Can any of the company-specific risk be diversified away by investing in both IPC MEXICO and Colgate Palmolive at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IPC MEXICO and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IPC MEXICO and Colgate Palmolive, you can compare the effects of market volatilities on IPC MEXICO and Colgate Palmolive and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IPC MEXICO with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPC MEXICO and Colgate Palmolive.

Diversification Opportunities for IPC MEXICO and Colgate Palmolive

0.71

Correlation Coefficient

IPC MEXICO  Colgate Palmolive

Poor diversification

The 3 months correlation between IPC and Colgate is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and IPC MEXICO is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on IPC MEXICO are associated (or correlated) with Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Colgate Palmolive go up and down completely randomly.

Pair Corralation between IPC MEXICO and Colgate Palmolive

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Colgate Palmolive. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 1.58 times less risky than Colgate Palmolive. The index trades about -0.07 of its potential returns per unit of risk. The Colgate Palmolive is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  153,715  in Colgate Palmolive on September 28, 2024 and sell it today you would earn a total of  29,985  from holding Colgate Palmolive or generate 19.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.69%
Values	Daily Returns

IPC MEXICO  vs.  Colgate Palmolive

Pair Trading with IPC MEXICO and Colgate Palmolive

The main advantage of trading using opposite IPC MEXICO and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO position performs unexpectedly, Colgate Palmolive can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Colgate Palmolive will offset losses from the drop in Colgate Palmolive's long position.

The idea behind IPC MEXICO and Colgate Palmolive pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.